Final answer:
The down payment is the upfront portion of a home's purchase price that a buyer pays out of pocket, separate from the mortgage. A traditional down payment is usually 20%, but lower rates that require mortgage insurance are also available. Option B.
Step-by-step explanation:
The correct answer to this question is B. Down payment. The down payment is the part of the purchase price of a home that is not financed through a loan and is paid up-front.
If a house costs $100,000, and you follow the traditional advice, you would make a 20% down payment, which amounts to $20,000. This reduces the loan amount to $80,000 that you would then finance through a mortgage.
If a 20% down payment is not feasible, buyers can opt for a lower down payment, anywhere between 0-3.5%. However, choosing a lower down payment usually requires the buyer to obtain mortgage insurance, which protects the lender in case the buyer defaults on the loan.
This insurance is an additional cost to the buyer and increases the overall amount paid over the life of the mortgage.
The terms collateral and copayment do not directly relate to the initial query about the purchase price and up-front payment. Collateral is an asset that can be seized if a loan is not repaid, while copayment is a small payment made by an insurance policyholder for each service before the insurance covers the remaining costs.
So Option B is correct.